Class 8 orders were characterized as “subdued” in May by research firm FTR, increasing just 4% over April’s order volume to 14,100 units. On top of that, medium-duty orders slowed to their lowest level since July 2014, noted ACT Research Co.; notching just 17,100 units for May.
However, despite that 14% month-over-month and 18% year-over-year decline in medium-duty orders, medium-duty order intake remained 4% higher on a year-to-date basis, ACT said.
Michael Baudendistel, vice president of the transportation & logistics research group at Stifel Financial Corp., noted in a research update that though Class 8 orders in May were “somewhat stronger” than expected, they are “still very weak relative to demand seen last year, down 30% year-over-year.”
He said Stifel anticipated orders would be down slightly sequentially, as trucking conditions remain poor or continue to deteriorate, plus May is "generally somewhat weaker" for truck orders than April on a seasonal basis.
“Still, the slight variance relative to our expectations in the month is not significant enough to change our Class 8 expectations for full-year 2016 or beyond,” Baudendistel said.
He added that Class 5-7 medium-duty data was “somewhat weaker than expected,” with the decline from prior-year levels “somewhat of a surprise after stronger-than-anticipated demand in recent months.”
Regardless, Stifel continues to believe that medium-duty production will be up slightly in the low-single digits for 2016 based on the order intake over the last few months.
The Class 8 forecast, however, is not so rosy to the eyes of Don Ake, vice president of commercial Vehicles at FTR, with order activity in May the lowest for the month since 2010 and 30% below a year ago. The past three months of Class 8 order activity annualizes to just 175,000 units, he added, with the annualized rate for the past twelve months continuing to fall, now at 231,000 units.
“The soft order activity [in May for Class 8 units] was expected. The good news is that they did not fall further from April, [and] some erosion in order activity is expected during the slow summer months,” Ake explained. “But fleets do not need to order many trucks in the current environment because in most cases they have enough trucks to handle the freight. Freight demand is still sluggish due to the build-up of business inventories.”
He pointed out that dealer inventories of Class 8 trucks “remain bloated, so the only truck orders now are mainly for replacement purposes, with preferred specifications.”
With backlogs expected to keep falling – they are now below May 2014, Ake said – it will “be a challenge for the OEMs to schedule production through the summer,” and thus “extended vacation shutdowns” are anticipated.
“Three consecutive months of decidedly lower net orders for heavy duty commercial vehicles appear more closely aligned with current activity in the manufacturing and energy sectors of the broader economy,” added Steve Tam, ACT’s vice president-commercial vehicle sector.
“While metrics in these segments are improving, they can best be described as not being as bad as they were previously,” he noted. “[That’s] framed by the ongoing overcapacity narrative – too many trucks chasing too little freight – the resultant weak freight rate environment, and continued softness in late-model used tractor values.”